This paper shows that the consumption‐based capital asset pricing model (C-CAPM) with low‐probability disaster risk rationalizes pricing errors. We find that implausible estimates of risk aversion and time preference are not puzzling if market participants expect a future catastrophic change...

One of the most outstanding accomplishments of the economic science over the last decades is the development of a sound and coherent theory of economic growth. Research in growth theory has demonstrated that significant and systematic increases in well-being are attainable whenever the right...

In response to the unprecedented uncertain rare events of the last decade, we derive an optimal portfolio choice problem in a semi-closed form by integrating price diffusion ambiguity, volatility diffusion ambiguity, and jump ambiguity occurring in the traditional stock market and the...